Gift or Loan – A Common Property Settlement Issue

It is not uncommon for a party to a relationship to receive monies from either their parents or other family members during the relationship. Such monies may be for the purpose of building a home, to purchase a car, or towards the costs of the wedding. So, how are such monies dealt with when considering the division of assets?

The short answer is, it depends upon the intentions of the family member and the parties at the time that the money was handed over to the parties of the relationship.

If it was a loan, it is usual that even in the absence of any written loan agreement, that there would have been some discussions surrounding the terms of the loan, that is, when is it to be repaid and how is it to be repaid.

If it was a gift, there are usually no such discussions regarding repayment and rather, it is a family member wanting to benefit one of the parties to the relationship, but in reality, both of the parties to the relationship.

Obviously if the monies were a loan, such monies are a liability in the asset pool available to be distributed between the parties, thereby decreasing the value of the net asset pool. Rather, if the monies were a gift, such monies are not deducted from the asset pool, but instead are considered as a contribution, more likely than not, by the direct family member of whom is gifting the money, for instance, the son of the parents who gifted the money and not the daughter-in-law. In such instance, although the parents were benefiting both the parties by their gift of monies, it was realistically a benefit received by the couple as a result of the son and as such, a contribution made by him. Accordingly, depending upon the value of the gift, the length of the relationship and how such gift was utilised will depend upon the ultimate impact that such gift will have upon the entitlements of the parties.

It is not uncommon for parties to a relationship to make a blatant attempt to recoup monies from the property settlement by claiming that monies that were received as a gift to actually be proceeds of a loan, that need to be repaid. The reason for such position is usually to decrease the value of the entitlements of the other party and after the property settlement has been finalised, the family member from whom the monies were received, will ultimately gift the monies back to that party.

Some factors which are considered in determining whether monies may have been received as a gift or as loan proceeds are as follows:

1. Were the terms of the loan reduced to writing and if not, were the terms ever discussed, for example, whether any interest was payable on the loan amount, were monies to be repaid by instalments or upon the happening of a specific event, such as the sale of a home. The timing of such agreement has much relevance, as should such agreement, in writing or otherwise, have been entered into before separation, the terms of same hold more weight, however, should such terms have been made following separation, this could be seen as a blatant attempt to thwart the property settlement process;
2. Were loan repayments ever made and also, when were such repayments made, bearing in mind the issues raised above, for instance, a long standing repayment arrangement throughout the relationship is significant evidence of a standing loan agreement, however, repayments made by one party following separation, would likely be viewed somewhat suspiciously;
3. Has the family member “called in” the loan, for instance, have they written to both parties to confirm the arrangement, to note their interest in the property settlement and to request repayment of the outstanding amount. It is important to bear in mind that such family members may become parties to any proceedings before the Court, so as to secure repayment of the loan. Further, such family members may have recourse to seek repayment of the loan outside of the family law arena in the civil jurisdiction and in this respect, they usually have a period of six years to commence such action.

As no two relationships are the same, there is no one size fits all answer in determining whether monies received during a relationship should be considered as a loan or a gift. For further advice tailored to your circumstances, please call our Gold Coast Family Lawyers or our Logan Family Lawyers for free family law advice on (07) 5679 8016.